Revenue Miss: The Southern Company Fell 11% Short Of Analyst Revenue Estimates And Analysts Have Been Revising Their Models

By
Simply Wall St
Published
November 02, 2020
NYSE:SO

As you might know, The Southern Company (NYSE:SO) last week released its latest third-quarter, and things did not turn out so great for shareholders. Southern reported an earnings miss, with US$5.6b revenues falling 11% short of analyst models, and statutory earnings per share (EPS) of US$1.18 also coming in slightly below expectations. Following the result, the analysts have updated their earnings model, and it would be good to know whether they think there's been a strong change in the company's prospects, or if it's business as usual. So we gathered the latest post-earnings forecasts to see what estimates suggest is in store for next year.

View our latest analysis for Southern

earnings-and-revenue-growth
NYSE:SO Earnings and Revenue Growth November 2nd 2020

Taking into account the latest results, the most recent consensus for Southern from twelve analysts is for revenues of US$22.2b in 2021 which, if met, would be a meaningful 10% increase on its sales over the past 12 months. Statutory earnings per share are predicted to accumulate 7.8% to US$3.31. Before this earnings report, the analysts had been forecasting revenues of US$22.2b and earnings per share (EPS) of US$3.31 in 2021. The consensus analysts don't seem to have seen anything in these results that would have changed their view on the business, given there's been no major change to their estimates.

It will come as no surprise then, to learn that the consensus price target is largely unchanged at US$61.06. There's another way to think about price targets though, and that's to look at the range of price targets put forward by analysts, because a wide range of estimates could suggest a diverse view on possible outcomes for the business. Currently, the most bullish analyst values Southern at US$67.00 per share, while the most bearish prices it at US$53.00. This is a very narrow spread of estimates, implying either that Southern is an easy company to value, or - more likely - the analysts are relying heavily on some key assumptions.

Looking at the bigger picture now, one of the ways we can make sense of these forecasts is to see how they measure up against both past performance and industry growth estimates. The analysts are definitely expecting Southern's growth to accelerate, with the forecast 10% growth ranking favourably alongside historical growth of 3.7% per annum over the past five years. Compare this with other companies in the same industry, which are forecast to grow their revenue 3.8% next year. Factoring in the forecast acceleration in revenue, it's pretty clear that Southern is expected to grow much faster than its industry.

The Bottom Line

The most important thing to take away is that there's been no major change in sentiment, with the analysts reconfirming that the business is performing in line with their previous earnings per share estimates. Fortunately, they also reconfirmed their revenue numbers, suggesting sales are tracking in line with expectations - and our data suggests that revenues are expected to grow faster than the wider industry. There was no real change to the consensus price target, suggesting that the intrinsic value of the business has not undergone any major changes with the latest estimates.

Keeping that in mind, we still think that the longer term trajectory of the business is much more important for investors to consider. At Simply Wall St, we have a full range of analyst estimates for Southern going out to 2024, and you can see them free on our platform here..

That said, it's still necessary to consider the ever-present spectre of investment risk. We've identified 2 warning signs with Southern (at least 1 which is a bit unpleasant) , and understanding these should be part of your investment process.

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This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
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